Christopher Bailey utters the word repeatedly as we chat at Burberry’s London headquarters. It’s his verbal Swiss Army knife, a term that can mean audacious (as in his and CEO Angela Ahrendts’s early plans to transform Bur­berry’s culture), admirable (his staff’s enthusiasm), or unfortunate (the way uncoordinated design teams once created Burberry products in various foreign markets: "It had nothing to do with the values of the company," he says. "You lost the soul.").

Observers could be forgiven for believing that Bailey’s appointment as Burberry’s next chief executive is bonkers too. But which definition? As the company’s lead designer since 2001 and chief creative officer since 2007, Bailey, 42, has helped to more than triple revenue since Ahrendts’s arrival eight years ago, to $3.1 billion in fiscal 2013. The two have turned the 158-year-old brand from fusty to fresh, unifying its design vision and expanding its digital presence. These accomplishments are both admirable and audacious.

If there’s anything unfortunate about Bailey’s promotion, it’s the task ahead of him: proving that a great designer can be a great CEO, too.

When Bailey takes over in the spring, he won’t be the first designer to helm a fashion brand—Ralph Lauren and Giorgio Armani come to mind. But he will be the first to lead a major luxury house that he did not found. And the markets have never been crazy about such firsts. On October 15, when it was announced that Ahrendts would leave for Apple, Burberry stock dropped 7.6% (and is still hovering around that level). But the stability Bailey offers probably prevented the dip from being worse; without the promotion, he had little left to accomplish at Burberry and would have been ripe for poaching. Plus, good design is widely recognized today as a cornerstone of good business, and nowhere has this been truer than at Burberry.

In fact, no other candidate was even discussed, says Burberry board member Ian Carter, president of Hilton Hotels. "Christopher has done a huge amount beyond designing product to bring a dowdy and uninspiring company to something more fresh and exciting," he says. "Maybe that hasn’t been visible to the outside."

Bailey’s ascension returns leadership to British hand—before Ahrendts, another American, former Saks president Rose Marie Bravo, ran the company for eight years. Bailey inherited his first Burberry trench coat, produced not 20 miles from his Yorkshire hometown, from his grandfather, and his passion for craftsmanship and tradition is a key part of his—and Burberry’s—narrative. "That coat has a story," he says during our conversation in London last summer. He leans forward in his white chair, which, like everything else in the building, he hand-selected. The coat’s fabric, he explains, "was woven in this incredible factory in the north of England. Then that roll of fabric was driven to our other factory where somebody unrolled it and they chalked it all out and they cut it. Then somebody else in another room started sewing it together. That story was designed 150 years ago, and it’s evolved like this."

Bailey has updated this history, propelling Burberry’s tale into digital engagement and social media. Most of his tech-driven initiatives, such as Bur­berry Kisses, a 2013 collaboration with Google that allows users to kiss their touch screens and send their "lip prints" to loved ones, have been no purchase necessary. They are entry points, whetting consumer appetites that may be satisfied with purchases months or years later. Bailey has "brought the Burberry brand to life through images," says Instagram CEO Kevin Systrom, who adds that his friend "recognized very early" the potential that social media platforms had "to reach people where they are looking to be inspired."

One of Bailey’s favorite examples of new storytelling is the RFID chip now sewn into some Burberry products. Stand before an RFID–enabled mirror at select Bur­berry stores and you can see the coat’s biography, beginning with the roll of fabric. "It’s not just a coat. People are interested in how it was created and the values that surround it," he says, sounding more Brooklyn artisanal-pickle maker than British merchant. "People want the soul in things."

But soul does little to move markets. Bailey must maintain the momentum accumulated under Ahrendts. And he needs to balance his creativity—pre-Burberry, he designed for Donna Karan and Gucci—with business savvy. "It comes back to the point about commercial versus creative," says Nomura analyst Fraser Ramzan, who believes investors will look to Bailey to answer the question: Is it a versus?

During a slightly nervous debut before financial analysts at the company’s November half-year-results presentation, Bailey emphasized "the distinctive union of the artistic and the commercial that defines Bur­berry today." He promised "no radical change to Bur­berry’s strategies as we enter this next phase." He proffered business-side credentials, noting his role "shaping the strategic direction for sustained financial growth." He announced that he would delegate more operational authority, signaling confidence in the team Ahrendts built by reducing the number of people who report directly to the CEO. And, to placate worries that he'll be overstretched, he elevated longtime lieutenant Luc Goidadin to a newly created position, chief design officer.

Bailey looked relieved as he introduced a video. He has made music a pillar of Burberry's brand. It's a way to craft context, to signal its spirit—and Ahrendts told me last summer that there's a business case for it: "The average person is on Burberry.com for 7.8 minutes," but on its music site, Burberry Acoustic, "they stay for 18 minutes."

The video's soundtrack, "The Magic Position," by English singer-songwriter Patrick Wolf, is the type of winsome thing that Bailey loves. It can be heard as a paean—to Ahrendts, or to Bur­berry. "It's you who put me in the magic position," Wolf sings, "to live, to learn, to love in the major key." Another line could be Bailey defying naysayers: "Shoot, bang, fire! It's the magic position we're in. Let the people talk."

Absolutely LOVE the digital things Burberry are doing! From the RFID chips to the digital holographic fashion show for the opening of the Beijing flagship store - they are really paving the way for other fashion houses! I think Bailey will be a brilliant CEO for Burberry, and i'm sure we will see even more incredible, exciting and innovative things soon!